Author: Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – Australia’s central bank will keep interest rates steady on Tuesday as a resilient labor market keeps inflation high, according to economists polled by Reuters, who pushed back forecasts for the first cut to the second quarter of next year.
The Reserve Bank of Australia is the only central bank among its peers that has not yet started lowering borrowing costs, in part because it raised benchmark rates by a relatively modest 425 basis points between May 2022 and November 2023.
Inflation, which the RBA targets at 2%-3%, fell to 2.8% in the previous quarter from a peak of 7.8% in late 2022 as global supply chains falter after the pandemic.
But core inflation remained stubbornly high at 3.5%, and with unemployment near record lows, the RBA is still likely to prefer to keep interest rates higher for longer.
All 44 economists in 28 November-12. 5 A Reuters poll expected the RBA to keep its official cash rate at 4.35% at the end of its two-day policy meeting on December 10.
Over a 60% majority, 25 out of 40, forecast the RBA would first cut rates by 25 basis points in the second quarter of 2025 to 4.10%, compared with a majority who said they would in the first quarter in a November poll.
The three main local banks in the survey, ANZ, NAB and Westpac, share that sentiment, while CBA predicts the first cut in the first quarter of 2025.
“The data flow after the RBA meeting in November was a bit more resilient, particularly in the labor market,” said Luci Ellis, Westpac’s chief economist, who changed her forecast for the first rate cut from February to May.
Financial markets currently estimate a more than 70% chance of a cut in April.
Ellis added that “the RBA has shown that it is underperforming” the economy by estimating that aggregate demand continues to outstrip supply.
Since then, there have been signs that the economy is weakening. Growth was the weakest annual pace since the pandemic last quarter.
“Given that growth has been slow over the past year, we expect this to translate into further easing of the labor market, but it will be some time before the RBA begins to gradually cut rates,” said Taylor Nugent, senior economist at NAB -in. .
“The economy is only very gradually moving towards equilibrium and the RBA will be later and shallower than other central banks that have kept rates in less restrictive territory for the past year.”
Falling mortgage rates next year are expected to help Australian house prices rise steadily next year, a separate Reuters poll showed.
With the RBA expected to cut rates by less than the US Federal Reserve, the Australian dollar was forecast to rise almost 1.5% on the year from around $0.644 currently, according to a Reuters poll of currency strategists.
(Other stories from the Reuters Global Economic Survey)
